-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ih8RlBKXlzlE/ZDD/rMG1LHq9V7u7x8mPR3N66JqmcmrZFy3r0NVzi8XN8aoXU9v mlkbRcka0cnNf9LsQMJ0pg== 0000049728-03-000012.txt : 20030721 0000049728-03-000012.hdr.sgml : 20030721 20030721154537 ACCESSION NUMBER: 0000049728-03-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030627 FILED AS OF DATE: 20030721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEC ELECTRONICS CORP CENTRAL INDEX KEY: 0000049728 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 133458955 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06508 FILM NUMBER: 03794662 BUSINESS ADDRESS: STREET 1: 105 NORTON ST CITY: NEWARK STATE: NY ZIP: 14513 BUSINESS PHONE: 3153317742 MAIL ADDRESS: STREET 1: PO BOX 271 CITY: NEWARK STATE: NY ZIP: 14513 FORMER COMPANY: FORMER CONFORMED NAME: INTERCONTINENTAL ELECTRONICS CORP DATE OF NAME CHANGE: 19730601 10-Q 1 iec10q3q2003.txt 3Q03 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange - - - Act of 1934 For the quarterly period ended June 27, 2003 Commission file Number 0-6508 IEC ELECTRONICS CORP. ----------------------------------------------------- (Exact name of registrant as specified in its charter.) Delaware 13-3458955 ----------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 105 Norton Street, Newark, New York 14513 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices (Zip Code) (315) 331-7742 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value - 7,993,210 shares as of July 21, 2003. Page 1 of 17 PART 1 FINANCIAL INFORMATION Page Number Item 1. Financial Statements Information with Respect to Financial Statements.............. 3 Consolidated Balance Sheets as of: June 27, 2003 (Unaudited) and September 30, 2002.............. 3 Consolidated Statements of Operations for the three months ended: June 27, 2003 (Unaudited) and June 28, 2002 (Unaudited)................................................... 4 Consolidated Statements of Operations for the nine months ended: June 27, 2003 (Unaudited) and June 28, 2002 (Unaudited)....... 5 Consolidated Statement of Cash Flows for the nine months ended: June 27, 2003 (Unaudited) and June 28, 2002 (Unaudited)....... 6 Notes to Consolidated Financial Statements (Unaudited)........ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 14 Item 4. Controls and Procedures.......................................... 14 PART II OTHER INFORMATION Item 1. Legal Proceedings.............................................. 15 Item 2. Changes in Securities and use of proceeds...................... 15 Item 3. Defaults Upon Senior Securities................................ 15 Item 4. Submission of Matters to a Vote of Security Holders............ 15 Item 5. Other Information.............................................. 15 Item 6. Exhibits and Reports on Form 8-K............................... 15 Signatures............................................................. 15 Page 2 of 17 PART 1 FINANCIAL INFORMATION Item 1 -- Financial Statements IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 27, 2003 AND SEPTEMBER 30, 2002 (in thousands, except for share data)
JUNE 27,2003 SEPTEMBER 30,2002 ---------------- ------------------ ASSETS (Unaudited) Current Assets: Cash $ 222 $ - Accounts receivable 4,282 5,480 Inventories 3,505 3,412 Other current assets 255 186 Current assets-discontinued operations 85 348 ---------- ---------- Total current assets 8,349 9,426 ---------- ---------- Fixed Assets: Land and land improvements 768 768 Building and improvements 3,995 3,995 Machinery and equipment 46,756 46,501 Furniture and fixtures 5,850 5,850 ---------- ---------- Sub-total gross property 57,369 57,114 Less accumulated depreciation (53,888) (52,781) ---------- ---------- Total fixed assets - net 3,481 4,333 Asset held for sale - 497 Non-current assets - discontinued operations - 809 Other non-current assets 224 - ---------- ---------- $ 12,054 $ 15,065 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Bank borrowings and current portion of long-term debt $ 1,894 $ 3,128 Accounts payable 3,934 6,250 Accrued payroll and related expenses 759 697 Other accrued expenses 720 1,497 Other current liabilities - discontinued operations 255 1,426 ---------- ---------- Total current liabilities 7,562 12,998 ---------- ---------- Long-term vendor payable 544 - Long-term debt 1,108 1,268 ---------- ---------- Total liabilities 9,214 14,266 ---------- ---------- Shareholders' Equity: Preferred stock, par value $0.01 per share Authorized - 500,000 shares; Issued and outstanding - none - - Common stock, par value $.01 per share Authorized - 50,000,000 shares; Issued and outstanding - 7,987,460 and 7,692,076, respectively 80 77 Treasury stock, 573 shares; at cost (11) (11) Additional paid-in capital 38,473 38,418 Retained earnings (35,618) (37,640) Accumulated other comprehensive loss - Cumulative translation adjustments (84) (45) ---------- ---------- Total shareholders' equity 2,840 799 ---------- ---------- $ 12,054 $ 15,065 ========== ========== The accompanying notes are an integral part of these financial statements
Page 3 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 27, 2003 AND JUNE 28, 2002 (in thousands, except share and per share data)
3 MONTHS ENDED 3 MONTHS ENDED JUNE 27, 2003 JUNE 28, 2002 -------------- ------------------ (Unaudited) (Unaudited) Net sales $14,030 $ 6,038 Cost of sales 12,222 5,622 ------- ------- Gross profit 1,808 416 ------- ------- Selling and administrative expenses 788 866 Restructuring charge - 448 Writedown of assets held for sale - 500 ------- ------- Operating profit (loss) 1,020 (1,398) Interest and financing expense (148) (254) Other income (expense), net 26 (45) Forgiveness of accounts payable (45) - ------- ------- Net income (loss) before income taxes 853 (1,697) Income taxes - - ------- ------- Net income (loss) from continuing operations 853 (1,697) Discontinued operations: Income (loss) from operations of IEC-Mexico disposed of (net of income taxes of $0 in 2003 and $26 in 2002) - (644) Estimated loss on disposal of IEC-Mexico (net of income taxes of $0 in 2003 and 2002) - (4,527) ------- ------- 853 (5,171) ------- ------- Net income (loss) $ 853 $ (6,868) ========= ========== Net income (loss) per common and common equivalent share: Basic Income (loss) from continuing operations $ 0.11 $ (0.22) Income (loss) from discontinued operations $ 0.00 $ (0.67) Income (loss) available to common shareholders $ 0.11 $ (0.89) Diluted Income (loss) from continuing operations $ 0.10 $ (0.22) Income (loss) from discontinued operations $ 0.00 $ (0.67) Income (loss) available to common shareholders $ 0.10 $ (0.89) Weighted average number of common and common equivalent shares outstanding: Basic 7,980,953 7,691,503 Diluted 8,418,332 7,691,503 The accompanying notes are an integral part of these financial statements
Page 4 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 27, 2003 AND JUNE 28, 2002 (in thousands, except share and per share data)
9 MONTHS ENDED 9 MONTHS ENDED JUNE 27, 2003 JUNE 28, 2002 -------------- ------------------ (Unaudited) (Unaudited) Net sales $ 39,099 $ 30,725 Cost of sales 35,056 30,199 ------- -------- Gross profit 4,043 526 Selling and administrative expenses 2,441 3,620 Restructuring (benefit) expense (63) 448 Writedown of asset held for sale - 900 ------- -------- Operating profit (loss) 1,665 (4,442) Interest and financing expense (536) (678) Forgiveness of accounts payable 578 - Other income (expense), net 131 (44) ------- -------- Net income (loss) before income taxes 1,838 (5,164) Income taxes - - ------- -------- Net income (loss) from continuing operations 1,838 (5,164) Discontinued operations: Income (loss) from operations of IEC-Mexico disposed of (net of income taxes of $0 for 2003 and $72 for 2002) 184 (3,169) Estimated loss on disposal of IEC-Mexico (net of income taxes of $0 in 2003 and 2002) - (4,527) ------- -------- 184 (7,696) ------- -------- Net income (loss) $ 2,022 $(12,860) ========= ========= Net loss per common and common equivalent share: Basic Income (loss) from continuing operations $ 0.24 $ (0.67) Income (loss) from discontinued operations $ 0.02 $ (1.00) Income (loss) available to common shareholders $ 0.26 $ (1.67) Diluted Income (loss) from continuing operations $ 0.23 $ (0.67) Income (loss) from discontinued operations $ 0.02 $ (1.00) Income (loss) available to common shareholders $ 0.25 $ (1.67) Weighted average number of common and common equivalent shares outstanding: Basic 7,858,203 7,691,503 Diluted 8,165,833 7,691,503 The accompanying notes are an integral part of these financial statements
Page 5 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 27, 2003 AND JUNE 28, 2002 (in thousands)
9 MONTHS 9 MONTHS ENDED ENDED JUNE 27, JUNE 28, 2003 2002 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,022 $ (12,860) (Income) loss from discontinued operations (184) 3,169 Loss on sale of discontinued operations - 4,527 Depreciation and amortization 1,145 1,223 (Gain) loss on sale of fixed assets (50) 45 Common stock issued under Directors Stock Plan 8 - Asset impairment writedown - 900 Changes in operating assets and liabilities: (Increase) decrease Accounts receivable 1,198 5,643 Inventories (93) 2,185 Other current assets (69) 29 Accounts payable (593) 2,017 Accrued payroll and related expenses 62 (587) Accrued insurance (323) 84 Other accrued expenses (453) (138) ------- -------- Net cash flows from operating activities 2,668 6,237 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (254) (190) Proceeds from sale of property 547 28 Proceeds from sale of discontinued operations property 875 315 -------- -------- Net cash flows from investing activities 1,168 153 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in drafts payable 225 (419) Repayments under line of credit agreements (4,396) (5,352) Proceeds from borrowings 3,500 - Principal payment on term debt (1,901) (1,579) Debt issuance costs (263) - Common stock issued under financing plan 50 - -------- --------- Net cash flows from financing activities (2,785) (7,350) -------- --------- Cash (used in) from discontinued operations (789) 984 -------- --------- Change in cash and cash equivalents 262 24 Effect of exchange rate changes (40) (24) Cash and cash equivalents at beginning of period - - -------- --------- Cash and cash equivalents at end of period $ 222 $ - ======== ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 536 $ 804 Income taxes $ - $ - Conversion of accounts payable to long term payable $ 760 $ - Non-cash investing and financing activities: Conversion of accounts payable to debt $ 1,187 $ - The accompanying notes are an integral part of these financial statements
Page 6 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 2003 (1) Business and Summary of Significant Accounting Policies Business - -------- IEC Electronics Corp. ("IEC", the "Company") is an independent electronics manufacturing services ("EMS") provider of complex printed circuit board assemblies and electronic products and systems. The Company is a significant provider of high quality electronics manufacturing services with state-of-the-art manufacturing capabilities and production capacity. Utilizing computer controlled manufacturing and test machinery and equipment, the Company provides manufacturing services employing surface mount technology ("SMT") and pin-through-hole ("PTH") interconnection technologies. As an independent full-service EMS provider, the Company offers its customers a wide range of manufacturing and management services, on either a turnkey or consignment basis, including design, prototype, material procurement and control, manufacturing and test engineering support, statistical quality assurance, complete resource management and distribution. The Company's strategy is to cultivate strong manufacturing relationships with established and emerging original equipment manufacturers ("OEMs"). Consolidation - ------------- The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiary, IEC Electronicos de Mexico ("Mexico") (collectively, "IEC"). Operations in Texas and Mexico were closed in July 2002. All significant intercompany transactions and accounts have been eliminated. Revenue Recognition - ------------------- The Company recognizes revenue upon shipment of product for both turnkey and consignment contracts. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company's cash and cash equivalents are held and managed by institutions which follow the Company's investment policy. The fair value of the Company's financial instruments approximates carrying amounts due to the relatively short maturities and variable interest rates of the instruments, which approximate current market interest rates. Inventories - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market. The major classifications of inventories are as follows at period end (in thousands): June 27, 2003 September 30, 2002 ---------------- ---------------- (Unaudited) Raw materials $ 1,673 $ 2,175 Work-in-process 1,790 1,214 Finished goods 41 23 ---------------- ---------------- $ 3,505 $ 3,412 ================ ================ Accounts Payable - ---------------- Trade accounts payable include drafts payable of $527,000 and $302,000 at June 27, 2003 and September 30, 2002, respectively. Page 7 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 2003 Long-lived Assets - ----------------- In October 2002, the Company sold its Alabama facility for $547,000. A gain of $50,000 was recorded in other income. In February 2003, the Company sold its Texas facility for $875,000. A gain of $75,000 was recorded as part of discontinued operations. Foreign Currency Translation - ---------------------------- The assets and liabilities of the Company's foreign subsidiary are translated based on the current exchange rate at the end of the period for the balance sheet and a weighted-average rate for the period of the consolidated statement of operations. Translation adjustments are recorded as a separate component of equity. Transaction gains or losses are included in operations. Unaudited Financial Statements - ------------------------------ The accompanying unaudited financial statements as of June 27, 2003, and for the three and nine months ended June 27, 2003 have been prepared in accordance with generally accepted accounting principles for interim financia1 information. In the opinion of management, all adjustments considered necessary for a fair presentation, which consist solely of normal recurring adjustments have been included. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2002 Annual Report on Form 10-K. Earnings Per Share - ------------------ Net income (loss) per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the weighted-average shares outstanding assuming conversion of all potentially dilutive stock options, warrants and convertible securities. (2) Comprehensive Loss ------------------ The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") on October 1, 1998. SFAS 130 requires comprehensive income and its components to be presented in the financial statements. Comprehensive income, which includes net income (loss) and foreign currency translation adjustments, was as follows for the three and nine months ended June 27, 2003 and June 28, 2002 (in thousands): 3 MONTHS 3 MONTHS ENDED ENDED June 27, June 28, 2003 2002 ---------- ----------- (Unaudited) (Unaudited) Net income (loss) $ 853 $ (6,868) Other comprehensive loss: Foreign currency translation adjustments (31) (3) ---------- ----------- Comprehensive income (loss) $ 822 $ (6,871) ========== =========== 9 MONTHS 9 MONTHS ENDED ENDED June 27, June 28, 2003 2002 ---------- ----------- (Unaudited) (Unaudited) Net income (loss) $ 2,022 $ (12,860) Other comprehensive loss: Foreign currency translation adjustments (39) (24) ---------- ----------- Comprehensive income (loss) $ 1,983 $ (12,884) ========== =========== Page 8 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 2003 (3) Discontinued Operations ----------------------- On June 18, 2002, the Company signed an Asset Purchase Agreement to sell substantially all of the assets of IEC-Mexico to Electronic Product Integration Corporation (EPI) for $730,000 plus payments of an Earn-out Amount. As of June 27, 2003, no additional amounts were earned under the agreement. Under the terms of a related agreement, the Company and IEC-Mexico were also released of all of their lease obligations to the landlord of the Mexican facility. EPI paid the Company $315,000 in June 2002, $265,000 in July 2002 and $150,000 in September 2002. The Company recorded an after-tax loss on the sale of the business of approximately $3.1 million in fiscal 2002. The reserve balance at June 27, 2003 was $193,000. It is anticipated that all remaining charges against the accrual will be made by September 2003. The Consolidated Financial Statements and related notes have been restated, where applicable, to reflect IEC-Mexico as a discontinued operation. Net sales of IEC-Mexico for the three and nine months ended June 27, 2003 were $0; and for the three and nine months ended June 28, 2002 were $2.1 and $10.8 million, respectively. These amounts are not included in net sales in the accompanying consolidated statements of operations. Assets and liabilities of discontinued operations consisted of the following (in thousands):
June 27, 2003 September 30, 2002 ------------- ------------------ Accounts receivable $ - $ 141 Other current assets 85 207 --------- ---------- Total current assets 85 348 Property, plant and equipment, net - 800 Other assets - 9 --------- ---------- Total non-current assets - 809 --------- ---------- Total assets $ 85 $ 1,157 ========== =========== Accounts payable $ 16 $ 668 Accrued payroll and related expenses 50 37 Other accrued expenses 189 720 ---------- ----------- Total current liabilities $ 255 $ 1,425 ========== =========== Net assets of discontinued operations $ (170) $ (268) ========== ===========
(4) Financing Arrangements ---------------------- On January 14, 2003, the Company completed a new $7,300,000 financing agreement composed of a $5,000,000 Senior Secured Facility (the "Facility"), a $2,200,000 Secured Term Loan (the "Term Loan") and a $100,000 infusion by certain of the Company's directors. The Facility, which has a 3 year maturity, bears interest at the rate of prime plus 2%. It involves a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory, a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period and a term loan of $550,000 secured by a first mortgage lien against the Company's Edinburg, Texas real estate which loan is due at the earlier of the sale of that real estate or one year from the date of closing. The Term Loan is secured by a general security agreement, and indirectly by the assignment of a certain promissory note and a first mortgage on the Company's plant in Newark, New York. It is payable with interest at prime plus 1.5% in monthly installments over a period of 3 years. Of the funds provided by the new financing, $1,540,016 was used to repay all but $100,000 of indebtedness to the Company's prior lenders who retained a subordinated interest in substantially all of the Company's assets until the Texas real estate was sold. On January 14, 2003, following the completion of the financing, the availability under the revolver was $1,200,000. On February 28, 2003, the Company sold its Edinburg, Texas facility for $875,000 and paid off $700,000 in term loans related to the facility including $100,000 to the Company's prior lender. The availability under the revolver was $1.9 million on June 27, 2003. Page 9 of 17 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 2003 The financing agreements contain various affirmative and negative covenants including, among others, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). The Company is in compliance with these covenants. (5) Stock Option Plans - ---------------------- The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its stock option plans. During the second quarter of fiscal 2003, the Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". The following table illustrates the effect on net earnings and earnings per share had the Company adopted the fair value based method of accounting for stock-based employee compensation for all periods presented. 3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS ENDED ENDED ENDED ENDED JUNE 27,2003 JUNE 28, 2002 JUNE 27, 2003 JUNE 28, 2002 ------------- --------------- -------------- -------------- Net earnings, as reported $ 853 $ (6,868) $ 2,022 $ (12,860) Pro forma net earnings $ 695 $ (6,858) $ 2,143 $ (12,830) Earnings per share: Basic - as reported $ 0.11 $ (0.89) $ 0.26 $ (1.67) Basic - pro forma $ 0.09 $ (0.89) $ 0.27 $ (1.67) Diluted - as reported $ 0.10 $ (0.89) $ 0.25 $ (1.67) Diluted - pro forma $ 0.08 $ (0.89) $ 0.26 $ (1.67)
(6) Litigation - -------------- The Company is from time to time subject to routine legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Company. On August 12, 2002, an action was commenced in United States District Court for the Southern Division of Texas (Civil Action No. M-02-358) against the Company and several other corporate defendants. The plaintiffs (Armando Gonzalez and Maria Sylvia Gonzalez, husband and wife, as Next Friends of Adrian Gonzalez, a Minor, et al.) allege a "toxic tort" action against the defendants, for exposure to lead, lead dust, chemicals and other substances used in the manufacture of products by the defendants. The essence of the complaint relates to alleged "in utero" exposure to the circulatory system of the then unborn children, resulting in alleged tissue toxicity through the mothers, causing damage to the central nervous system, brain and other organs of the fetus. The complaint alleges theories of negligence, gross negligence, strict liability, breach of warranty and fraud/negligent misrepresentation, and claims unspecified damages for pain and suffering, a variety of special damages, punitive damages and attorneys fees. An answer has been filed denying liability on the part of the Company. The case is in the discovery phase. Royal & Sunalliance Insurance Company has agreed to provide a defense of the claims with a reservation of rights, but has expressly excluded any coverage for the claim for punitive damages. Page 10 of 17 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------- Results of Operations - Three Months Ended June 27, 2003, Compared to the Three Months Ended June 28, 2002. ----------------------------------------------------------- Net sales for the three month period ended June 27, 2003, were $14.0 million, compared to $6.0 million for the comparable period of the prior fiscal year, an increase of 133 percent. The increase in sales is primarily due to increased demand from IEC's major customers. Turnkey sales were 95 percent of net sales in the quarter as compared to 87 percent for the comparable period of the prior year. Gross profit was $1.8 million or 13 percent of sales for the three month period ended June 27, 2003, versus $0.4 million or 7 percent of sales in the comparable period of the prior year. The increase in gross profit percentage is primarily due to IEC's concerted efforts to reduce manufacturing overhead costs. Selling and administrative expenses decreased to $0.8 million in the three months ended June 27, 2003, from $0.9 million in the comparable period of the prior year, a decrease of 9 percent. This decrease is primarily due to a decrease in the number of employees. As a percentage of net sales, selling and administrative expenses decreased to 6 percent from 14 percent in comparison to the same quarter of the prior fiscal year. IEC recorded a pre-tax charge of $448,000 in the three months ended June 28, 2002. This was due to the restructuring and reduction in workforce at IEC's Newark, NY facility. IEC also recorded a pre-tax charge of $500,000 in the three months ended June 28, 2002. This was due to an additional writedown of IEC's Alabama building held for sale as a result of a softening in the comercial real estate market. IEC has recorded no income tax expense as a result of its net operating loss carryforwards that were created in prior years and that will be utilized against current and future year income. Net income from continuing operations for the three months ended June 27, 2003 was $0.9 million versus a loss of $(1.7) million in the comparable quarter of the prior year. Diluted income per share from continuing operations was $0.10 as compared to diluted loss per share from continuing operations of $(0.22) in the comparable quarter of the prior fiscal year. Page 11 of 17 Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------------------------------------------- Results of Operations - Nine Months Ended June 27, 2003, Compared to Nine Months Ended June 28, 2002. - -------------------------------------------------------------------------------- Net sales for the nine month period ended June 27, 2003, were $39.1 million, compared to $30.7 million for the comparable period of the prior year, an increase of 27%. Turnkey sales were 94 percent of net sales in the nine month period as compared to 92 percent for the comparable period of the prior fiscal year. Gross profit was $4.0 million or 10 percent of sales for the nine month period ended June 27, 2003, versus $0.5 million or 1.7 percent of sales in the comparable period of the prior year. Gross profit benefited from a $450,000 adjustment in net inventory reserves related to excess inventory that was used in operations or sold back to customers. Gross profit was negatively impacted by a $557,000 provision made against a promissory note from Acterna Corporation. Otherwise, the increase in gross profit percentage is primarily due to IEC's concerted efforts to reduce manufacturing overhead costs. Selling and administrative expenses decreased to $2.4 million in the nine months ended June 27, 2003, from $3.6 million in the comparable period of the prior fiscal year, a decrease of 33%. This decrease is primarily due to a decrease in the number of employees. As a percentage of net sales, selling and administrative expenses decreased to 6 percent from 12 percent in comparison to the same quarter of the prior fiscal year. IEC recorded a pre-tax charge of $448,000 in the nine months ended June 28, 2002. This was due to the restructuring and reduction in workforce at IEC's Newark, NY facility. IEC also recorded a pre-tax charge of $900,000 in the nine months ended June 28, 2002. This was due to an additional writedown of IEC's Alabama building held for sale as a result of a softening in the commercial real estate market. IEC had other income of $709,000 for the nine months ended June 27, 2003. Of the other income, $578,000 was related to negotiated forgiveness of accounts payable owed to various creditors, and $50,000 related to the sale of its Alabama facility as discussed in IEC's FOrm 10Q for the quarter ended December 27, 2002. IEC has recorded no income tax expense as a result of its net operating loss carryforwards that were created in prior years and that will be utilized against current and future year income. Net income from continuing operations for the nine month period was $1.8 million versus net loss from continuing operations of $(5.2) million in the comparable period of the prior fiscal year. Diluted earnings per share from continuing operations was $0.23 as compared to diluted income per share from continuing operations of $(0.67) in the comparable period of the prior fiscal year. Discontinued Operations - ----------------------- On June 18, 2002, IEC signed an Asset Purchase Agreement to sell substantially all of the assets of IEC-Mexico to Electronic Product Integration Corporation (EPI) for $730,000 plus payments of an Earn-out Amount. As of June 27, 2003, no additional amounts were earned under the agreement. Under the terms of a related agreement, IEC and IEC-Mexico were also released of all of their lease obligations to the landlord of the Mexican facility. EPI paid IEC $315,000 in June 2002, $265,000 in July 2002 and $150,000 in September 2002. IEC recorded an after-tax loss on the sale of the business of approximately $3.1 million in fiscal 2002. The reserve balance at June 27, 2003 was $193,000. It is anticipated that all remaining charges against the accrual will be made by September 2003. The Consolidated Financial Statements and related notes have been restated, where applicable, to reflect IEC-Mexico as a discontinued operation. On February 28, 2003, IEC sold its Edinburg, Texas facility and completed its restructuring initiative. As a result, IEC recorded a $184,000 restructuring benefit due to certain facility payments accrued in a prior fiscal year that will no longer be paid out. Page 12 of 17 Significant Events - ------------------ The Company's revenues are derived primarily from sales to North American customers in the industrial and telecommunications industries and are concentrated among specific companies. During Fiscal 2002, two customers accounted for 67% of consolidated net sales. During the first nine months of 2003, two customers accounted for 90% of consolidated net sales. One of these customers has announced its intention to begin manufacturing most of the products it currently purchases from the Company at its own facility. The Company believes that it will be able to retain a piece of that business. The Company has recently added several new customers and has received additional business from existing customers. Furthermore, the Company expects to add additional customers in the near future. Liquidity and Capital Resources - ------------------------------- As reflected in the Consolidated Statements of Cash Flows for the nine months ended June 27, 2003, net cash provided by operations was $2.7 million and $1.4 million was provided from the sale of the property. Of this, $2.7 million was used to reduce IEC's debt. On January 14, 2003, IEC completed a new $7,300,000 financing agreement composed of a $5,000,000 Senior Secured Facility (the "Facility"), a $2,200,000 Secured Term Loan (the "Term Loan") and a $100,000 infusion by certain of the IEC directors. The Facility, which has a 3 year maturity, bears interest at the rate of prime plus 2%. It involves a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory, a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period and a term loan of $550,000 secured by a first mortgage lien against IEC's Edinburg, Texas real estate which loan was due at the earlier of the sale of that real estate or one year from the date of closing. The Term Loan is secured by a general security agreement, and indirectly by the assignment of a certain promissory note and a first mortgage on the IEC plant in Newark, New York. It is payable with interest at prime plus 1.5% in monthly installments over a period of 3 years. Of the funds provided by the new financing, $1,540,016 was used to repay all but $100,000 of indebtedness to IEC's prior lenders who will retain a subordinated interest in substantially all of IEC's assets until the Texas real estate is sold. On January 14, 2003, following the completion of the financing, the availability under the revolver was $1,200,000. On February 28, 2003, IEC sold its Edinburg, Texas facility for $875,000 and paid off $700,000 in term loans related to the facility. The availability under the revolver was $1.9 million on June 27, 2003. The financing agreements contain various affirmative and negative covenants including, among others, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). IEC is in compliance with these covenants. In connection with the financing, IEC entered into agreements with certain of its trade creditors providing for extended payment terms involving an aggregate of approximately $2.0 million of past due balances. In addition, certain trade creditors agreed to discounted payment terms. Such discounts amounted to $0.6 million and were recorded in the first half of fiscal 2003. Application of Critical Accounting Policies - ------------------------------------------- IEC's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for IEC include revenue recognition, impairment of long-lived assets, accounting for legal contingencies and accounting for income taxes. IEC recognizes revenue in accordance with Staff Accounting Bulletin No.101, "Revenue Recognition in Financial Statements." Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. IEC evaluates its long-lived assets for financial impairment on a regular basis in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." IEC evaluates the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated discounted future cash flows associated with them. At the time such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Page 13 of 17 IEC is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies", requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. IEC evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact IEC's financial position or its results of operations. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in IEC's financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact IEC's financial position or its results of operations. Impact of Inflation - ------------------- The impact of inflation on IEC's operations has been minimal due to the fact that it is able to adjust its bids to reflect any inflationary increases in cost. Item 3 -- Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of IEC due to adverse changes in financial rates. IEC is exposed to market risk in the area of interest rates. One exposure is directly related to its Term Loan and Revolving Credit borrowings under the Credit Agreement, due to their variable interest rate pricing. Management believes that interest rate fluctuations will not have a material impact on IEC's results of operations. Item 4 -- Controls and Procedures ----------------------- (a) Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, IEC's principal executive officer and principal financial officer have concluded that IEC's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act") are effective to ensure that information required to be disclosed by IEC in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. Subsequent to the date of that evaluation, there have been no significant changes in IEC's internal controls or in other factors that could significantly affect internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses. Forward-looking Statements - -------------------------- Forward-looking statements in this Form 10-Q include, without limitation, statements relating to the Company's plans, future prospects, strategies, objectives, expectations, intentions and adequacy of resources and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by their use of words like "plans", "expects", "aims", "believes", "projects", "anticipates", "intends", "estimates", "will", "should", "could", and other expressions that indicate future events and trends. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic and business conditions, the timing of orders and shipments, availability of material, product mix, changes in customer requirements and in the volume of sales to principal customers, competition and technological change, the ability of the Company to control manufacturing and operating costs, and satisfactory relationships with vendors. The Company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of these and others factors, including factors set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 2002 and in other filings with the Securities and Exchange Commission. Page 14 of 17 PART II. OTHER INFORMATION Item 1 -- Legal Proceedings The description of IEC's legal proceedings set forth in Item 3 of IEC's Annual Report on Form 10-K for the fiscal period ended September 30, 2002 is incorporated herein by reference. Item 2 -- Changes in Securities and Use of Proceeds None. Item 3 -- Defaults Upon Senior Securities None. Item 4 -- Submission of Matters to a Vote of Security Holders None. Item 5 -- Other Information None. Item 6 -- Exhibits and Reports on Form 8-K a. Exhibits The following documents are filed as exhibits to this Report: 99.1 A certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 99.2 A certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. b. Reports on Form 8-K (i) A current report on Form 8-K was filed with the Securities and Exchange Commission on April 10, 2003. The report provided information regarding the appointment of a new Chief Financial Officer. (ii) A current report on Form 8-K was filed with the Securities and Exchange Commission on May 5, 2003. It announced earnings for the three months ended March 28, 2003 and a press release relating to the earnings was attached thereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IEC ELECTRONICS CORP. REGISTRANT Dated: July 21, 2003 /s/ W. Barry Gilbert ----------------------------- W. Barry Gilbert Chairman and Acting Chief Executive Officer Dated: July 21, 2003 /s/ Brian H. Davis ------------------------------ Brian H. Davis Chief Financial Officer and Controller Page 15 of 17 CERTIFICATIONS I, W. Barry Gilbert, certify that: 1. I have reviewed this quarterly report on Form 10-Q of IEC Electronics Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 21, 2003 IEC Electronics Corp. By: /s/ W. Barry Gilbert ------------------------ W. Barry Gilbert Chairman and Acting Chief Executive Officer Page 16 of 17 CERTIFICATIONS I, Brian H. Davis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of IEC Electronics Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 21, 2003 IEC Electronics Corp. By: /s/ Brian H. Davis -------------------------- Brian H. Davis Chief Financial Officer and Controller Page 17 of 17 EX-99.1 3 exhibit9913q03.txt CEO CERTIFICATION Exhibit 99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 In connection with the Quarterly Report of IEC Electronics Corp. (the "Company") on Form 10-Q for the period ended June 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Barry Gilbert, Acting Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 21, 2003 /s/ W. Barry Gilbert ----------------------- W. Barry Gilbert Chairman and Acting Chief Executive Officer EX-99.2 4 exhibit9923q03.txt CFO CERTIFICATION Exhibit 99.2 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 In connection with the Quarterly Report of IEC Electronics Corp. (the "Company") on Form 10-Q for the period ended June 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brian H. Davis, Chief Financial Officer and Controller of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 21, 2003 /s/ Brian H. Davis --------------------- Brian H. Davis Chief Financial Officer, Controller -----END PRIVACY-ENHANCED MESSAGE-----